How the Inflation Reduction Act Could Lower Your Drug Costs

Democrats are on the verge of a sweeping health care achievement that will address one of the country’s most intractable problems: high prescription drug costs.

The Senate on Sunday passed a broad climate, tax, and health care package that delivers key pieces of President Joe Biden’s stalled economic agenda. While the legislation is smaller than Democrats’ original hopes last year, the health care provisions alone are what Biden might call a “big f-cking deal.”

This bill will give Medicare the ability to bargain with drug manufacturers for lower prescription drug costs. It is something many wealthy governments do, and it has been a priority of Democrats for a while. For seniors who are already struggling to pay high healthcare costs, this could make a significant difference in their lives. It will also allow them to save thousands each year. The Inflation Reduction Act, if passed by the House and signed by Biden into law will make the largest change in health care history since 2010.

After months of negotiation in Congress, the legislation is a major loss for pharmaceutical companies. This industry has been lobbying Washington for many years and waged a vigorous campaign against Medicare’s attempt to negotiate drug prices. With a vote of 51 to 50 from each party, the bill passed Aug. 7. Vice President Kamala Harris cast the tiebreaking vote. However, the idea is very popular in all political parties and it will allow Democrats to win a major political victory that they can use for their campaign into November.

“We have been working for nearly two decades to allow Medicare to negotiate the price it pays for medications,” said AARP CEO Jo Ann Jenkins. “This bill will save Medicare hundreds of billions of dollars and give seniors peace of mind knowing there is an annual limit on what they must pay out-of-pocket for medications.”

Medicare would be allowed to negotiate drug prices. The package would limit out-of pocket costs seniors have to pay for medication at $2,000 each year. If drug prices increase faster than inflation, the package will require pharmaceutical companies that they pay rebates. It would also extend the three-year extension of the premium subsidies, which 13 million Americans received during the epidemic to purchase health insurance through the Affordable Care Act.

The House is slated to vote on the package Friday, and after that, it will go to Biden’s desk. Here’s how the health care pieces of the bill would affect Americans.

Drug price negotiation

The package would empower the federal government to negotiate prices for certain expensive medications that seniors get at their doctors’ offices or at pharmacies. Medicare would be able to negotiate 10 drug prices starting in 2026. This would rise to 15 drugs by 2027, 2028 and 2028 and 20 drugs each year until 2029.

The House Democrats supported an earlier, more ambitious bill on drug pricing. However, progressives believe this will allow for future reform. Experts say that this version of the law will still result in significant savings.

“This is an idea that has been talked about for decades,” says Tricia Neuman, senior vice president and executive director for the program on Medicare policy at the nonpartisan Kaiser Family Foundation. “It would be a start, and it would be a real statement that policymakers want to do something significant about drug prices.”

While it’s not yet clear which drugs would be negotiated and precisely how many Americans would be helped, the provision would curtail costs and deliver significant savings for Medicare over time, according to the Congressional Budget Office (CBO).

Prescription drug costs are consistently one of voters’ top health care concerns. CBO data shows that the average cost of brand-name medications in Medicare Part D (which covers prescriptions at the counter) has more than tripled since 2009. Gallup and West Health recently conducted a survey that found nearly 40% of Americans have cut back on their health care spending or skipped treatment in the past six months due to high healthcare costs.

Donna Weiner, a retired woman, shows Donna some of her daily prescription drugs and she pays more than $6,000 per year for a Medicare prescription plan. This was Tuesday, October 5, 2021 in Longwood (Fla.).

Phelan M. Ebenhack—AP

Keep out-of pocket drug expenses to a minimum

A second piece of the bill would prohibit seniors and people with disabilities from spending more than $2,000 per year on medications that they purchase at their pharmacy. It would also change Medicare’s catastrophic coverage.

Medicare beneficiaries have no maximum out-of pocket for drug expenses. They often live on fixed incomes. After reaching $7,050, the beneficiary pays 5% of all subsequent costs. Although 5% is not a large amount, when you consider the cost of expensive drugs it can quickly add up. The new law would prohibit them from paying any medication costs once their annual income exceeds $2,000

That’s true for people like 71-year-old George Valentine, a retired IT executive near Dallas, Texas who has chronic lymphocytic leukemia. For his leukemia treatment, he lives on a fixed-income with his wife. 12 medications are taken daily by him. “I really feel helpless, as far as being able to predict and support my out-of-pocket drug costs,” he says. Valentine has gotten grants from the PAN Foundation, which helps pay patients’ out-of-pocket costs, but drug prices keep going up.

“We haven’t gotten to the point where we’re taking less drugs or, going to the doctor and saying, what happens if, instead of taking two pills a day, I take one pill a day,” he says, “But I’m one more drug away.”

This new maximum of $2,000 will make a huge difference for Medicare beneficiaries, who typically spend much more each year than the current limit. Experts say the bill will remove cost-sharing for adult vaccinations that are covered by Medicare Part D. Another provision that will aid seniors in getting the necessary treatment.

“It doesn’t take a lot of money for someone to have to walk away from the pharmacy counter,” says Amy Niles, executive vice president of the PAN Foundation. “If they don’t have the resources to pay for these medications, they are likely not going to fill their prescriptions. And that’s going to have a devastating impact on their health.”

How to combat inflation

If medication prices rise faster than inflation, drug companies will be required to provide rebates.

Glen Fewkes, director for health care accessibility and affordability at AARP said that the price of prescription drugs has increased up to twice as fast as inflation during an Invest America event. The rebates will only be available to Medicare members, but the CBO has previously stated it anticipates that the policy could have spillover benefits which would lower the cost of prescription drugs for commercial plans.

“All of this is incredibly life changing,” Rep. Susie Lee, a Democrat from Nevada, said during the event hosted by Invest in America. “It will ensure that drug companies will no longer be able to raise prices faster than the rate of inflation so that families can keep up with those costs.”

According to the pharmaceutical industry, the proposed changes would hurt new drug development. CBO estimates that changes to the bill will result in 15 less drugs being on the market within the next 30-years, which is approximately 1% of the estimated 1,300.

The Democrats hoped that this provision would apply to private insurance. However, it was rejected by the Senate Parliamentarian who stated that the package does not comply with the criteria to pass through the budget process used for the bill.

How to reduce insulin cost

According to Centers for Medicare & Medicaid Services, the bill will set a $35 monthly price limit on insulin for Medicare beneficiaries. This is a huge help for the nearly 3.3 million Medicare beneficiaries who are dependent upon insulin. KFF reports that the average Medicare patient who used insulin in 2020 spent $54 on a prescription. This is an increase of 40% over 2007

Democrats and seven Republican Senators hoped that this would also be applicable to Americans who have private insurance. But after a ruling from the Senate parliamentarian said that a private insurance cap wouldn’t comply with the budget reconciliation process, the rest of Senate Republicans were able to strike it from the bill.

Obamacare subsidies

In addition to the Medicare sections of the Inflation Reduction Act the bill will increase the subsidies for Americans with low and moderate incomes who buy insurance through the Affordable Care Act. These were extended by the American Rescue Plan in response to the coronavirus pandemic. They are due to expire this year. These subsidies will continue to be available until the end 2025.

Rep. Lee pointed out that if those subsidies were removed, the premium increase for a family of four from middle-class families would be $6,600. She stated that the average couple in middle age nearing retirement would have experienced an annual premium increase of nearly $16,000.

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